One in 10 will cash in their entire pension savings

Around one in 10 (10 per cent) planning to retire this year expect to withdraw their entire pension savings as one lump sum, reveals new research¹from Prudential’s Class of 2018, risking a potential tax bill shock and their future retirement income.

The findings are part of Prudential’s unique annual research into the financial plans and aspirations of people planning to retire in the year ahead – now in its 11^th year – and shows in total that one in five (20 per cent)  retiring this year will risk avoidable tax bills by taking out more than the tax-free 25 per cent limit on withdrawals.

However, they are not necessarily spending all the cash – the study found the main reason given by those taking all their fund in one go was to invest in other areas such as property, a saving accounts or an investment fund (71 per cent). And interestingly research shows around two thirds (66 per cent) of people are planning on retiring early.

Since the launch of pension freedom reforms in April 2015, more than 1.1 million people aged 55-plus have withdrawn around £15.744 billion² in flexible payments.

Government estimates³ show around £2.6 billion was paid in tax by people taking advantage of pension freedoms in 2015/16 and 2016/17 tax years with another £1.1 billion raised in the 2017/18 tax year.

The most popular use of the cash is for holidays with 34 per cent planning to spend the money on trips. Around (25 per cent)  will spend the money on home improvements while one in five (20 per cent) will gift the money to their children or grandchildren. Other popular uses include buying cars or paying off mortgages.